Inflation numbers keep getting worse. In February, headline inflation for the UK rose to a huge 6.2% compared to the same month last year, according to numbers released today. Let me put this in perspective. The Bank of England’s target inflation rate is 2% to ensure economic growth and systemic stability.
Inflation’s impacts on the stock markets
Considering that the present inflation number is far ahead of the targeted one, there is a likelihood of an adverse impact on the economy. And indeed, the stock markets. First, there is the sentimental impact, which can result in short-term reactions on poor inflation prints. Second, inflation impacts companies’ costs. This in turn can impact their financials and their subsequent stock price performance. Third, investors’ real income declines as inflation increases, which means there could be less available to save and invest.
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But there are some stocks that may well still continue to perform. Like the one I will now talk about, which I have in my own portfolio. It is among the few today that are seeing rising prices even as the FTSE 100 index is down by more than 1%.
AstraZeneca is a FTSE 100 defensive to buy
I am talking about the Anglo-Swedish pharmaceuticals company AstraZeneca. Since the pandemic, I wonder each time I write about it whether it needs any introduction at all. After all, it is now well known, since so many of us have had the benefit of its vaccination.
The really interesting thing about the company, though, is that its key speciality is actually cancer treatment. It has been quite successful at making cancer-beating treatments and is also expanding into other areas, like rare diseases, through its acquisition of the US-based Alexion.
Given the nature of its business, the company is likely to stay resilient even during a high inflation induced recession. And it is also more likely to have pricing power, which is the ability to pass on costs to end consumers, than less crucial goods and services’ producers. We can argue the ethics of whether such price increases should be allowed to happen or whether they should be subsidised for consumers, but that is a separate question.
Super-pricey but worth it
As an investor in the stock, I have found it to be one of my best decisions. And this is despite the fact that it is a super pricey stock both in terms of its absolute price as well as market valuations. It has a price of 9,712p as I write, which is comparable to the most expensive FTSE 100 stock, which is Spirax-Sarco Engineering. And in terms of price-to-earnings (P/E), it has a mind-numbing valuation of 462 times. This, though is not a reflection of its true valuation, a point I explained in detail recently after its released its results.
As inflation rises, I am considering increasing my holdings of the stock.